Financing for Agriculture: The Role and Impact of the Guarantee Schemes

Svetlana Aleksandrova

Abstract: Agriculture, like all sectors of the economy, needs credit for its development. As it is a sector affected by the natural phenomena and various other risks, there are specific agricultural credit conditions which are difficult to meet by most farmers. The credit guarantees schemes in Bulgaria are a comparatively new instrument in developing agricultural finance. Such schemes supported by governmental program have used in European countries a response to difficulties of agricultural holders and processing companies to access bank credits. The article examines the key issues which are taken into consideration to gain access to credit and discusses the various financial products for financing the agriculture, including schemes and instruments developed by the European Union Commission and European Investment Fund. It also provides a review of agricultural Credit Guarantee scheme and its role in improving assess to agricultural credits by showing that these schemes provide loans to small and medium processing enterprises and mainly beneficiaries under the Rural Development Program. The schemes were created with the aim of overcoming the lack of financial resources for small and medium-sized business and to reverse the economic down trend. The Guarantee scheme applied in Bulgaria is successful, but it does not solve the problem of insufficient investment for small holders and micro and small enterprises.

Keywords: agricultural credit; asymmetric information; EU financial instruments; guarantee scheme; Rural Development Program; sustainable rural banking

Date published: 2018-01-31